Offshore Oil and Gas Leases: The Unanswered Question
Despite some recent government action, the oil-and-gas market has yet to rebound to where it was three years ago. It is not certain when the next wave of oil-and-gas bankruptcies will hit, but when it does, we might see more companies engaging in offshore exploration and production seeking bankruptcy protection. Exploration and production (E&P) companies and other parties involved in offshore drilling face uncertainty in bankruptcy. Courts have yet to determine whether an offshore oil-and-gas lease may be assumed or rejected in bankruptcy. This article discusses assumption and rejection under § 365 of the Bankruptcy Code, the law that is generally applicable to offshore oil-and-gas leases, and bankruptcy litigation in which parties debated the proper characterization of an offshore lease, yet the issue was never resolved in that matter. The article concludes with an analysis of how Congress may resolve the issue.